Lenders provided a loan to a company that was managed exclusively by the shareholders' cousin, who held a minority stake in the company and served as its sole director until his passing. Following his death, the company, which was left with debts, did not repay the loan to the lenders. Therefore, the lenders sought to hold the shareholders personally liable for the repayment of the loan.
The Court held that there were no grounds to pierce the corporate veil and hold the shareholders liable for the company debts. As a general rule, a company is a separate legal entity from its shareholders and shareholders cannot be compelled to pay its debts. However, in exceptional cases, the corporate veil may be pierced and a shareholder held personally liable, for instance, when a shareholder uses the separate legal personality to defraud the company creditors, takes an unreasonable risk regarding the company's ability to pay its debts or creates a commingling of business and personal affairs. Holding a shareholder liable for company debts is conditional on proving their awareness of the misuse of the company separate legal personality. In this case, the shareholders were not involved in the day-to-day management of the company, which was managed exclusively by their cousin. They were also unaware of the loan agreement that was signed without their approval. The lenders themselves never met the shareholders and received no representation from them whatsoever. Therefore, the shareholders will not be held personally liable for the companys debts.